Filing for bankruptcy protection is most likely the last thing anyone wants to do, but understanding when you are in need of protection is really rather easy. Becoming bankrupt is a black and white experience much more than it is a gray one. As a general rule of thumb, you are completely financially bankrupt if your current sustainable income plus any cash reserves will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. Depending on which state you live, this definition of bankruptcy should not include any of your retirement moneys as cash reserves.

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All of us have heard the horror stories of bill collectors and their willingness to harass debtors. Some of us may have even been a party to such harassment, but when harassment is against the law, just how do bill collectors seem to get away with it so often? Well, there is a legal problem with bill collections providing a gray area in the law enabling bill collectors to take liberties with their words.

In an attempt to regulate the collections industry, Congress passed the Fair Debt Collection Practices Act (FDCPA) in 1978 as Title VIII of the Consumer Protection Act.

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Many Americans currently considering bankruptcy are in financial trouble partly because of the struggling housing market. Underwater mortgages (those in which the homeowner owes more than the home’s current value) are a reality for as many as 28 percent of American homeowners.

Even though bankruptcy law prohibits the court from modifying the terms of a primary mortgage, some bankruptcy lawyers have found a legal way to help their clients stay in their home and avoid foreclosure.

Unsecured Second Mortgages

Here’s the process some bankruptcy petitioners are following to help ease their mortgage debt:

• File for Chapter 13 bankruptcy: Entering a Chapter 13 case means that the filer agrees to a three- to five-year repayment plan in which she will catch up on past-due debts.
• Petition the court to declare a second mortgage unsecured debt: Filers who have second mortgages that, combined with their primary mortgages, exceed the value of their home’s current value, may be able to make this move. A ban

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The results of a study conducted through the University of Illinois found that those who filed for bankruptcy protection have largely seized their chance at financial redemption and are changing their financial lives for the better, according to an article on Mother Nature Network.

Our bankruptcy lawyers in Joliet, Chicago and elsewhere in Illinois see the change in our clients, from their first office call or visit to the resolution of their case. Debt can create an enormous amount of stress in a household, particularly those under the relentless barrage of collection agencies.

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